Fin 1.31.12 Notes - Chapter 4 Fin 3244 Coupon Rate o Income...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 4 Fin 3244 1/31/12 Coupon Rate o Income Derived from fixed income security Total Return o Capital Gains as well as dividends o If Bond 8% and market interest rate is 6% then coupon rate is worth more. Trading in the present value (PV). o Capital Gain only when you sell it. Potential gain to actual gain o Bond issued at par if coupon is accurate to market interest rate. Issue at current rate. o If interest rates low why loan out money? o Capital Gain can be on stock and bond Expected Return o Calculation to estimate based on certain conditions o Add together weighted return Treat separate entities then add together Inflation/Deflation o Deflation Lowering of prices. Going below zero. Real Estate When price is suppose to go down consumer tends to wait If everyone waits there is lower consumption Causes unemployment to go up Time Value of Money o PV and FV problems o N Number of periods o I Interest Rate o PMT amount paid (Coupon) o FV par value at maturity o CAPM Rf+(Rm-Rf)B Rm-Rf= Risk Premium Risk Premium expect to receive by being in market Risk free rate only free of default risk Because of this has a lower yield Nominal=quoted rate includes inflation Real Rate of Return= means inflation is sucked out “This isn’t real” Risk free rate includes inflation Positive cash flow based on given return o Net Present Value Present Value of various cash flows. Get PV totals then add up then subtract what you spent to make cash flows appear
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2/2/12 Holding Period o The total return from holding a stock for a specific period of time o The time you can buy and sell o Capital Gain only involves the money that you made by selling a stock Also get dividend income then potential for capital gain o Total return means any and all income during a period of time including capital gain and dividends o Realized return what you actually got Paper Return o A return has been achieved buy not yet realized by an investor during a given period of time o Potential or possible return o You haven’t sold or bought yet Mathematical process of holding period return o Bought car for 100 people rent it for 10 sell it for 150. Ex pg 153 Internal Rate of Return o Time value of money calculation o The compound annual rate of return earned by a long-term investment, the discount rate that produces a present value of the investment’s benefits that just equals its cost Simple interest o Car loan o Non compounded interest Reinvestment Rate o The rate of return earned on interest or other income received from an investment over its investment horizon.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern